J.R. Simplot keeps potato business all in the family

The son also rises: Scott Simplot invests in technology and has shut longtime plants, to the consternation of his 95-year-old dad

By George Anders
The Wall Street Journal

http://www.sltrib.com/business/ci_2424833

BOISE, Idaho – In August, J.R. Simplot, the 95-year-old billionaire who founded the food and fertilizer company that bears his name, buttonholed his son Scott. He wanted to talk about Scott Simplot’s plan to cut the company’s cattle holdings – reversing his father’s decadeslong practice of maintaining large feedlots.

The pair became ensnared in a drawn-out argument about strategy. Scott says he kept walking away, muttering, ”Whatever you say, Dad.” Exasperated, the father shot back. ”Well, dang it – you’re fired.”

For J.R. Simplot, the outburst was futile because he no longer owns voting stock in the company and doesn’t have any real control over its operations. For his son, it was the latest episode in a long struggle to modernize a storied American company and the legacy created by his own father.

As an eighth-grade dropout, J.R. Simplot left home in the early 1920s to set up his own pig farm. Restless and ambitious, he went on to become one of America’s most prominent farmers and ranchers. From the 1950s onward, he supplied McDonald’s Corp. with most of its frozen french fries. License plates on his pickup truck proclaimed him to be ”MR SPUD.”

He plunged into whatever interested him, holding to a belief that the American West was chock-full of opportunities and that go-getters like him could strike it rich. As his holdings grew, he reveled in their sheer size, frequently sweeping over his acreage in a small private plane.

Today his youngest son, 57-year-old Scott, is guiding J.R. Simplot Co. with his own personal style. Gone is the swagger about huge land holdings in the western U.S. and random investments in offbeat businesses. Instead, with the help of outside management, Simplot is closing long-cherished though inefficient plants, standardizing accounting systems and moving away from selling commodities by the ton. Job cuts are common now, dismaying Idahoans who regarded a job at Simplot as lifetime employment.

Scott Simplot, now the company’s chairman and largest stockholder, is a soft-spoken man who collects pebbles – in particular, phosphates from western riverbeds – and regularly reads The Economist magazine. Armed with a Wharton M.B.A., he talks about ”expected value calculations” and says his approach represents the best hope of shoring up growth prospects after years of uneven results.

”You have to understand that out here, farmers had sons so that the sons could run the farm,” Scott Simplot says. ”Our farm was a little bigger than average, but the idea still applies.”

Within the Simplot family, father and youngest son have been clashing – and making up – for as long as anyone can remember. In Scott’s childhood, they quarreled over gin-rummy techniques and eventually stopped playing each other. In the 1970s, they battled over Scott’s plan to augment the use of computers at the company. Scott, who won the argument, argued with data; J.R. bet on his hunches.

Both men agree Simplot isn’t performing as well as it could. The closely held company doesn’t report earnings, but insiders say margins on its potato and cattle businesses have slipped to single-digit percentages after hovering at 10 percent in the late 1990s. Annual sales have inched up to $3.1 billion from $2.7 billion in the past five or six years. Employment, which peaked at 13,000 three years ago, now stands at about 11,500.

Seeds of success: The Simplot business began to take off after J.R. bought his first electric potato sorter in 1928. By the start of World War II, he was running the biggest potato-sorting operation in Idaho, filling 5,000 rail cars each season. As his company expanded, he dried onions, mined iron ore, ran a fish farm and sold hamburger patties. The Simplots scored big in 1946 when company chemist Ray Dunlap invented a way to make frozen french fries that wouldn’t turn soggy. Those became a huge hit with McDonald’s and other fast-food chains. In the early 1970s, analysts estimated, 40 percent of Simplot’s profits came from supplying McDonald’s with fries.

As J.R. Simplot grew older, he started transferring power. In the early 1960s, he began signing over his Class A voting stock to his four children and invited them onto the company board. From 1973 onward, he promoted a series of trusted lieutenants to be president and chief executive officer while he remained chairman.

J.R. Simplot expected his children to eventually take over the company but the process didn’t run smoothly. J.R.’s oldest son, Richard, died in 1993, at age 59. His next son, Donald, dropped out of college, married five times and – according to company biographer Louie Atteberry – ”displayed a general insouciance regarding the whole idea of school.” A daughter, Gay, took a keen interest in the Simplots’ civic activities but didn’t aspire to the top job.

That left the youngest son, Scott, who was good at school and liked to tinker with machines. After Scott graduated from the University of Idaho with a degree in business, his father nudged him to get an M.B.A., and Scott headed to the University of Pennsylvania’s Wharton School.

Immediately after graduating in 1973, Scott was made director of planning and information technology. It didn’t take long for father and son to collide. They argued about diversification moves, budgets and computer upgrades. Scott was cool toward a plan championed by his father to buy a meat-packing plant in Nampa, Idaho. The company went ahead, but closed the plant a decade later.

Profiting from chips: In the mid-1980s, the company was showing signs of age. Simplot’s once-unique french-fry technology was being copied by rivals willing to sell fries more cheaply. Simplot’s other big divisions – fertilizer and cattle ranching – were profitable but not growing fast. Simplot got lucky with an offbeat diversification, a vestige of J.R.’s scattershot approach. In the mid-1980s, the company and J.R. Simplot personally invested several million dollars in a tiny Idaho start-up, Micron Technology Inc., which made memory chips. Commentators joked about the potato company that wanted to make chips of any kind, but as Micron thrived, the value of that stock soared.

Simplot made hundreds of millions of dollars from its stake and still owns 3 percent of Micron. Scott Simplot was the first to hear about Micron and urged his father to make the investment. Mostly on the back of that success, the family’s estimated net worth topped $4.7 billion in 2000. It has since slipped to $2.3 billion.

In 1994, at the age of 85, J.R. Simplot resigned from the board, although people still consulted him on major decisions. He remains chairman emeritus and periodically attends meetings. In recent years, he has pared back his contributions. Of the company’s 11 directors, five are Simplot family members, who along with their offspring control all the company’s Class A voting stock.

The next generations: Family leadership was handed to a four-person executive committee consisting of siblings Scott, Gay and Don, along with J.E. ”Ted” Simplot, J.R.’s grandson and son of the deceased Richard.

”It took six or seven years for the next generation to figure out its role,” says Stephen Beebe, who was Simplot CEO from 1994 to 2002.

In a bid to revive the company, Scott Simplot and two of his siblings interviewed Lawrence Hlobik, 59, for the job of running the fertilizer division. A computer-systems specialist, Hlobik had spent 25 years at various energy and fertilizer companies in the Midwest. They chose him without consulting their father.

J.R. Simplot’s health is fading. On a recent morning in his downtown Boise apartment, he parried an invitation to critique his children’s stewardship of the company. ”I just hope they do a better job with it than I did,” he said. ”If my kids lose it,” he continued, before shutting off that train of thought. ”They’re not in any danger of doing that,” he declared.

That morning, Scott Simplot stopped by and helped adjust the older man’s cane. They reminisced about the patriarch’s earliest ventures in the 1920s, the son prompting the father to recall his memories.

Later, it was lunchtime. Unable to walk more than a few hundred feet, J.R. Simplot got on his three-wheel scooter and headed toward the elevator. Picking up speed in the street below, he raced to Boise’s Arid Club to eat and play gin rummy – his way – with friends.